[Weekly Market Outlook] US Default Concerns Persist... Market Likely to Remain Cautious

This week (15th-19th), attention is focused on the progress of the US debt ceiling negotiations, and the stock market is expected to remain cautious. A major diplomatic event scheduled is the opening of the Group of Seven (G7) summit on the 19th.

According to the securities industry on the 14th, the expected weekly KOSPI band is anticipated to be between 2420 and 2550. Strong first-quarter earnings from listed companies and a rebound in the 12-month forward earnings per share (EPS) are seen as factors easing valuation pressures, supporting stock price increases. On the other hand, uncertainties surrounding the US debt ceiling negotiations and weakened expectations for the spillover effects of China's retaliatory consumption are downside factors.

U.S. President Joe Biden held a press conference after discussing the debt ceiling issue with congressional leaders, including House Speaker Kevin McCarthy and Republican Senate Majority Leader Mitch McConnell, at the White House in Washington, D.C., on the 9th (local time).
[Photo by Yonhap News]

With the possibility of the US federal government defaulting being raised, whether the debt ceiling negotiations reach a resolution is a critical variable. Attention is also focused on the US April retail sales data to be released on the 16th. The market expects retail sales to increase by 0.7% month-on-month, marking a turnaround to growth after three months. This indicates a recovery in US household consumption, which is likely to act as a positive factor for the stock market. Additionally, Eurozone first-quarter GDP data is scheduled for release on the 16th, and Japan's first-quarter GDP will be announced on the 17th.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "Amid ongoing political and diplomatic uncertainties such as US-China conflicts that may arise around the G7 summit, expectations for a turnaround in the earnings of underperforming companies are expected to support the downside of the index," adding, "It is necessary to continue paying attention to differentiation among stocks during the earnings season."

In a situation where external uncertainties persist, the domestic stock market is expected to see capital flow centered on sectors that have reported strong earnings. About 91% of KOSPI 200 companies (based on market capitalization of companies with earnings consensus) have reported their results. The aggregate earnings of companies announced so far have exceeded consensus (109% based on operating profit). The momentum of secondary battery-themed stocks, which heated up the market in the first quarter, has recently weakened due to profit-taking.

The securities industry advised that attention should be refocused on "large growth stocks." Lee Hyuk-jin, a researcher at Samsung Securities, said, "Among the top market capitalization stocks, the proportion of large growth stocks with low price rise burden and high growth expectations should be increased," adding, "In the KOSPI, where foreign net buying (accumulated 9.6 trillion KRW) continues, stocks with favorable supply and demand conditions are judged to be able to expect high returns."

This content was produced with the assistance of AI translation services.